office of inspector general -...

OFFICE OF INSPECTOR GENERALfor the Millennium Challenge Corporation

AUDIT OF THE MILLENNIUM CHALLENGECORPORATION (MCC) RESOURCESMANAGED BY MILLENNIUM CHALLENGEACCOUNT-MOLDOVA (MCA-MOLDOVA),UNDER THE COMPACT AGREEMENTBETWEEN THE MCC AND THEGOVERNMENT OF MOLDOVA FROMOCTOBER 1, 2009 TO DECEMBER 31, 2011

AUDIT REPORT NO. M-000-12-027-NSeptember 27, 2012

WASHINGTON, DC

Financial information contained in this report may be privileged. Therestrictions of 18 Usc 1905 should be considered before any information isreleased to the public.

Office ofAuditfor the Millennium Challenge Corporation

September 27, 2012

Mr. Patrick Fine, Vice President, Department of Compact OperationsMillennium Challenge Corporation875 15th Street, NWWashington, DC 20005-2203

Subject: Audit of the Millennium Challenge Corporation (MCC) ResourcesManaged by Millennium Challenge Account-Moldova (MCA-Moldova),Under the Compact Agreement Between the MCC and the Government ofMoldova from October 1, 2009 to December 31, 2011(Report No. M-000-12-027N)

Dear Mr. Fine:

Attached is the subject audit report prepared by the independent audit firm, Ernst& Young. The audit was contracted by Millennium Challenge Account — Moldova (MCAMoldova) and covered expenditures totaling $1 1,279,395 related to: Compact Funds$8,410,564; Compact Implementation Funds $13,276; and, 609g Funds $2,855,555 forthe period from October 1, 2009 to December 31, 2011.

The U.S. Government acting through the Millennium Challenge Corporation(MCC) signed a five-year Compact with the Government of Moldova for approximately$262 million. The Government of Moldova established MCA-Moldova to implement andmanage the programs described in the signed Compact. The purpose of the Compactis to improve agricultural productivity and expand access to markets and servicesthrough critical infrastructure investments in the irrigation and road sectors; and, buildthe capacity in the high-value agriculture sector.

We have reviewed the report and accepted it as meeting the reportingrequirements of the Guidelines for Financial Audits Contracted by the MillenniumChallenge Corporation’s Accountable Entities issued by the U SAID’s Office of the

Millennium challenge Corporation1401 H Street N.W.Suite 770Washington, DC 20005www.usaid.oov/oig

Inspector General. However, the auditors Ernst & Young disclosed that they did notfully comply with the U.S. Generally Accepted Government Auditing Standards(GAGAS) since thaydid not have an External Quality Control Review by an unaffiliatedaudit organization, as required by Chapter 3, paragraph 3.55 of U.S. GovernmentAuditing Standards, as no such program is offered by professional organizations inMoldova. Ernst & Young also did not have a continuing education program that fullysatisfies the requirements set forth in Chapter 3, paragraph 3.46 of U.S. GovernmentAuditing Standards. Our review was limited to an examination of the audit report. Wedid not conduct a quality control review of the audit working paper documentation.

The audit included a) expressing an opinion on MCA-Moldova’s FundAccountability Statement, b) evaluating and obtaining an understanding of MCAMoldova’s internal control structure and (c) determining MCA-Moldova’s compliancewith the Compact terms and applicable laws and regulations.

The auditors reported that the fund accountability statement presented fairly, inall material respects, program revenues and expenditures for the period audited. Therewere no matters involving internal control and its operations that were considered to besignificant deficiencies or material weaknesses and no instances of noncompliance thatwere required to be reported.

This report is being transmitted to you for your information. If you have anyquestions regarding this report, please refer them to Fred Jones, Director of FinancialAudits at (202) 216-6963.

Sincerely,

Richard J. TaylorDeputy Assistant Inspector Generalfor AuditMillennium Challenge Corporation

cc: Terry Bowie, MCC, Chief Financial Advisor, Administration & Financebowietl(âmcc.qov

Arlene McDonald, MCC, Compliance Officer, Administration and Financemcdonalda(mcc.qov

Martha Edmondson, MCC, Senior DirectorEdmondsonmc(mcc.qov

Kevin Mitchell, MCCI Fiscal Directormitchellkd(mcc.qov

McCuaig, Leslie J (DCO/EAPLAIRCD), Resident Country DirectorMcCuaiglicmcc.qov

Teodora Danila, Executive Director, Ernst & YoungTeodora.danilaro.ey.com

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AUDIT OF THE MILLENNIUM CHALLENGE CORPORATION (MCC) RESOURCES MANAGED BYMILLLENNIUM CHALLENGE ACCOUNT (MCA-MOLDOVA) UNDER THE COMPACT AGREEMENTBETWEEN MCC AND THE REPUBLIC OF MOLDOVA FOR THE PERIOD FROM OCTOBER 2009TO 31 DECEMBER 2011

5 JULY 2012

CHISINAU, REPUBLIC OF MOLDOVA

[[BiiflTF111u1 11ERNSr& YOUNGr.D-20i2 Oh s’aoRepu0Ic of MoWova

Tei: +373 2221 4040Pax: .3732221 4044

5 July 2012

Mr. Alvin BrownAssistant Inspector GeneralMillennium Challenge Corporation1401 H Street N.W. Suite 770Washington, DC 20005

Subject: Audit of the Millennium Challenge Corporation (MCC) Resources Managed byMillennium Challenge Account - Moldova (MCA Moldova) under the CompactAgreement between MCC and the Republic of Moldova for the Period fromOctober 2009 to 31 December2011.

Dear Mr. Brown

Please find attached our Reporting on Fund Accountability Statement of the MillenniumChallenge Corporation (MCC) Resources Managed by MCA Moldova under the CompactAgreement dated 22 January 2010 signed between the United States of America actingthrough Millennium Challenge Corporation and the Republic of Moldova acting through itsGovernment for the Period from 1 October 2009 to 31 December 2011.

1. Background

The United States of America, through the Millennium Challenge Corporation (the “MCC”) and theRepublic of Moldova executed a Millennium Challenge Compact on January 22, 2010 (the “Compact”)that sets forth the general terms and conditions on which MCC will provide funding not to exceed USD262 million to the Government of Moldova (the “Government”) for a Millennium Challenge Accountprogram to advance economic growth and reduce poverty in Moldova (the “Program”). The Compactshall remain in force for five (5) years as from September 01, 2010, the date of Entry into Force. Also,the United States of America, acting through the MCC, and the Government executed a Grant andImplementation Agreement on October 7, 2009 (the “609(g) Agreement”) that sets forth the generalterms and conditions on which MCC provided funding not to exceed USD 3.19 million which activitiesfacilitated the development and implementation of a Millennium Challenge Compact.

Based on the Government decision Nr 161 dated March 4, 2010 was established the public institution“Moldova Millennium Challenge Account” (MCA Moldova) with the purpose to manage the investment,financial, and technical assistance projects funded by the MCC and other donors, implementation of theCompact between the United States of America, acting through the MCC, and the Republic of Moldova.Also the above mentioned decision approved the Bylaws of the MCA Moldova.

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1. Background (continued)

MCA Moldova has the following bodies:(I) the Steering Committee of the Institution (hereinafter referred to as the “Steering Committee’) is

the superior management and supervising body of the MCA Moldova. The Steering Committee isthe independent and final decision-making body regarding the fundamental issues relating to theProjects;

(ii) the Executive Committee of the MCA Moldova (hereinafter referred to as the ‘ExecutiveCommittee”) is the independent decision-making body of the MCA Moldova and has authority totake final decisions regarding a limited number of issues as set forth in the Bylaws;

(iii) the Consultative Group of the MCA Moldova (hereinafter referred to as the “Consultative Group”)recommends and submits general proposals regarding the implementation of the Projects. Suchrecommendations and proposals are sent to the Steering Committee through its representatives onthe Steering Committee;

(iv) the Management Unit of the MCA Moldova (hereinafter referred to as the ‘Management’)represents the executive body of the MCA Moldova and is responsible for the daily management ofthe Projects.

The funds disbursed under 609(g) Agreement” prior to the date of set up of the MCA Moldova werefinanced by the UNDP based on the agreement signed between the Government of Republic of Moidovaand UNOP.

The personnel of MCA Moldova, who was selected based on the competitive basis, was enrolled startingfrom July 1, 2010 after the approval by the MCA Moldova Steering Committee.

2. Program Objective

The Program objective is to increase incomes through increased agricultural productivity andexpanded access to markets and services through improved roads. The Program consists ofthe Transition to High Value Agriculture (THVA) Project and the Road Rehabilitation Project(RRP).

Transition to High Value Agriculture Project ($101,773,401)

The objectives of the THVA Project are to: (i) increase rural incomes by stimulating growth inirrigated high value agriculture; and (ii) catalyze future investments in high value agricultureby establishing a successful and sustainable model of irrigation system and water resourcemanagement and a conducive institutional and policy environment for irrigated agriculture.

The THVA Project consists of the following Activities:

(,) Centralized Irrigation System Rehabilitation Activity (CISRA)From financial sources of this activity will be rehabilitated up to eleven (11) irrigation systemscovering a command area of up to approximately 15,500 hectares, will be provided technicalassistance and capacity building to support legal transfer of management and operations ofMCC-rehabilitated systems from the Government to Water User Associations.

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2. Program Objective (continued)

(ii) Irrigation Sector Reform Activity (ISRA)The ISRA is designed to: establish the enabling environment and institutional capacityrequired to ensure effective management (operations, maintenance and financing) of therehabilitated irrigation systems (thereby better ensuring their sustainability); and improveMoldova’s capacity to manage its limited water resources in light of increasing demand forwater and the expected effects of climate change.

(iii) Access to Agricultural Finance (AAF) ActivityThe objective of the AAF Activity is:

• to provide term financing needed, to support increased investment in the high valueagriculture supply chain, to facilitate transition to high value agriculture withparticular focus on serving farmers and enterprises operating in the irrigation systemstargeted for rehabilitation.

• Improved sorting and packing of produce, and the ability to extend the production andmarketing season, can assist Moldovan producers to become more competitive indomestic and export markets and to sell their production at a higher price.

(iv) Growing High Value Agriculture Sales (GHS) ActivityThis activity will be administered by the United States Agency for International Development(the “USAID”). From financial sources of this activity will be provided market developmentsupport and technical assistance and training to help producers and agribusinesses betteraccess high value agriculture markets and support the shift to high value agriculture at theproduction and post-harvest level, and promote sustainable agricultural practices (Pleaserefer to point 4).

Road Rehabilitation Project ($132,840,000)

The objectives of the RRP are to: (i) increase incomes of the local population by reducing thecost of transport, goods and services; (ii) reduce losses to the national economy resultingfrom the deteriorated road conditions; and (iii) reduce the number of road accidents troughimproved traffic conditions.

The RRP consists of the following Activities:

(1) M2 Road ActivityMCC Funding will be used to rehabilitate and upgrade a 93 km portion of the M2, beginningnear Sarateni at the southern end and ending at the junction with the R7 road west to Drochia(the “Drochia junction”) at the northern end. MCC Funding will also be used to replace orupgrade associated structures within this segment of the M2, such as bridges, drainagesystems and culverts, to improve road maintenance and safety. The M2’s improvement isexpected to reduce vehicle operating costs, reduce travel time, change maintenance costs,cause an increase in the value of goods moved and in frequent travel.

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2. Program Objective (continued)

(ii) Supplemental Feasibility StudyMCC Funding will also be used for a feasibility study/environmental and social impactassessment for the road segment from Arionesti to the border crossing in Otaci, detaileddesign work, a resettlement action plan and an updated environmental and social impactassessment for the entire road section from the Drochia junction to the border crossing inOtaci.

Monitoring and Evaluation ($3,538,931)

The Monitoring and Evaluation (M&E) Project comprises two components: The MonitoringComponent and Evaluation Component.

To monitor progress toward the achievement of the impact and outcomes, the MonitoringComponent of the M&E Plan will identify the indicators, the sources and methods for datacollection, the frequency for data collection, the timeline and format for reporting on eachIndicator and the method by which the reported data will be validated.

The evaluation component of the M&E Plan will contain three types of evaluations: impactevaluations; project performance evaluations; and special studies. The evaluation componentof the M&E Plan will describe the purpose of the evaluation, methodology, timeline, requiredMCC approvals, and the process for collection and analysis of data for each evaluation.

Project Administration and Audit ($23,847,668)

The main objective of this component is general Program oversight and administration, including financialmanagement and procurement management, which are actually outsourced to two internationalcompanies.

3. External Agencies

During the reporting period 1 October 2009 - 31 December 2011 MCA Moldova was supportedby two (2) external agencies - Louis Berger SAS as the Fiscal Agent, for the period up to 16November 2011 and Booz Allen Hamilton Inc as the Procurement Agent. The Fiscal Agent isresponsible for execution of payments, financial management and accounting functions of MCAMoldova, whereas the Procurement Agent supports the administration, management andexecution of MCA Moldova’s procurement activities.

Starting 17 November 2011 the Fiscal Agent has been replaced with Booz Allen Hamilton asInterim Fiscal Agent.

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4. Part of Program implemented by other organization

United Nations Development Programme

United Nations Development ProgrammeAn agreement has been signed on 20 October 2009 between the United Nations DevelopmentProgramme (“UNDP”) and the Government of Moldova in which the two parties have agreed to cooperate in providing support to the development and negotiation of the Millennium Challenge Compact(‘UNDP Agreement’).

In accordance with the agreement the Government of Moldova has placed at the disposal of UNDP aUSD 163,000 contribution to be used for financing of indirect costs incurred by UNDP headquartersand country office structures in providing General Management Support services. To cover the GeneralManagement Support services, the contribution includes a fee of 3%.

In accordance with the article 3 of UNDP Agreement- the contribution was to be administered by UNDP in accordance with UNDP regulations, rules

policies and procedures, applying its normal procedures for execution of its projects- project management and expenditure shall be governed by regulations, rules, policies and

procedures of UNDP

In accordance with article 6 of UNDP Agreement- the contribution shall be subject exclusively to the internal and external auditing procedures

provided for the financial regulations, rules , policies and procedures of UNDP

The contribution was paid directly by MCC to UNDP.

The above mentioned contribution shall be subject exclusively to the internal and external auditingprocedures provided for in the financial regulations, rules, policies and procedures of UNDP.

UNDP expenses financed from the respective contribution are included in the Fund AccountabilityStatement based on the report received from UNDP on use of the contribution

The United States Agency for International Development

A memorandum of understanding was signed on 12 May 2011 between The United States Agency forInternational Development (‘USAID”), the Millennium Challenge Corporation and the MillenniumChallenge Account Moldova (‘USAID Memorandum of Understanding”)

In accordance with “USAID Memorandum of Understanding” it is expected that USAID will manage theGHS Activity under the USAID Agricultural Competitiveness and Enterprise Development project(“ACED Project”) through the contractor selected by USAID to implement ACED Project.The respective memorandum specifies that MCA is responsible for the first 3 activities of the THVAProject (refer to point 1.2 above) were USAID expects to manage activity 4 of the THVA Project underGHS Activity.

Amounts have been paid directly by MCC to USAID.

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4. Part of Program implemented by other organization (continued)

In accordance with the Program Implementation Agreement signed between the United States ofAmerica acting through MCC and the Republic of Moldova dated January 22, 2010, section 2.11 (e),neither the Govemment nor MCA Moldova, as the Government’s Permitted Designee, will beresponsible for Project activities and achieving corresponding targets (inoicators and outcomes) forwhich USAID has sole responsibility under the Administration Agreement.

5. Audit Objective

The objective of our engagement was to conduct a financial audit of the MCC resourcesmanaged by MCA-Moldova under the Compact, pre-Compact between the MCC and theGovernment from October 2009 through December 2011 in accordance with U.S. GovernmentAuditing Standards issued by the Comptroller General of the United States and the “MillenniumChallenge Corporation Guidelines for Financial Audits Contracted by Foreign Recipients” (the“MCC Audit Guidelines”) issued by the USAID Office of the Inspector General (OIG).

A financial audit of the funds provided by MCC must be performed in accordance with U.S.Government Auditing Standards and accordingly include such tests of the accounting records asdeemed necessary under the circumstances. The specific objectives of the audit of the MCCprovided funds are to:

(i) Express an opinion on whether the FAS for the MCC-funded programs presentsfairly, in all material respects, revenues received and costs incurred for the periodaudited in conformity with the terms of the Compact, pre-Compact and/or supplementalagreement and related ancillary agreements and generally accepted accountingprinciples or other comprehensive basis of accounting (including the cash receipts anddisbursements basis and modifications of the cash basis), including supplementalschedules to reflect accruals for items, such as accounts payable and other relatedexpenses.(ii) Evaluate and obtain a sufficient understanding of MCA-Moldova’s internal controlsrelated to the MCC-funded programs, assess control risk, and identify reportableconditions, including material internal control weaknesses. This evaluation must includethe internal controls related to required cost-sharing contributions.(iii) Perform tests to determine whether MCA-Moldova complied, in all materialrespects, with the Compact, pre-Compact and/or supplemental agreement, andapplicable laws and regulations related to MCC-funded programs. All material instancesof noncompliance and all illegal acts that have occurred or are likely to have occurredmust be identified. Such tests must include the compliance requirements related torequired cost-sharing contributions, if applicable. Specifically, the auditor shall performtests to determine whether MCA-Moldova complied, in all material respects, with the MCCProgram Procurement Guidelines and the Fiscal Accountability Plan in effect during theaudit period.(iv)Determine if MCA-Moldova has taken adequate corrective action on the prior auditreport recommendations.

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6. Performance o’ aud procedures & Result

We have performed ow- work r, accordance with the Audit Plan authorized by you on 17February 2012.

As we did not have an external quality control review by an unaffiliated audit organization asrequired by Chapter 3, paragraph 3.96 on Page 66 GAQ-12-331-G Government AuditingStandards, since no Such program is offered by the professional organization in Moldova wehave included a paragraph in our reporting in this respect. We believe that the effects of thisdeparture from U.S. C.overnment Auditing Standards is not material because we participate inthe worldwide internal quality control review program of Ernst & Young, which require thatindividual partners and signing executives be subjected every 3 ears, to an extensive qualityreview by partners and executives from other Ernst & Young offices.

Note that we have not performed oocedures on the financing provided to USAID and UNDPrefer to point 4 abc s. We have included a paragraph in our report in this resoect

We do not have a continng education program that fully satisfies the requirement set forthin Checter 3, paragraph 3.76 on Page 58 GAO12-331G Government Auditing Standards.However our current program provides for at least 85 hours of continuing education andtraining every year. In addition to this team members have each completed an additional 8hours of training on specific U.S. Government Auditing Standards and US audit requirementstopics. We are taking appropriate steps to implement a continuing education program thatfully satisfies the requirement

As result of procedures performed we have not identified any reportable conditions. We haveissued a Management Letter to MCA Moldova on 21 June 2012

7. Deliverables

Please refer to:- Annex A for Independent Auditor’s Report on the Funds Accountability Statement the

Period from 1 October 2009 to 31 December 2011- Annex B for Independent Auditor’s Report on Internal Control the Period from 1

October 2009 to 31 December 2011- Annex C for Independent Auditor’s Report on Compliance the Period from 1 October

2009 to 31 December 2011- Annex 0 for the Fund Accountability Statement of MCA Moldova for the Period from 1

October 2009 to 31 December 2011

Ernst & Young SRLChisinau, Moldova

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In dependent Auditor’s Report

Steering Committee of the Millennium Challenge Account MoldovaGovernment BuildingPiata Marii Adunari Nationale 1,MD 2033, Chisinau, Republic of Moldova

We have audited the Fund Accountability Statement and accompanying notes of theMillennium Challenge Account Moldova (“MCA Moldova”) for the period 1 October 2009to 31 December 2011. The Fund Accountability Statement is the responsibility of MCAMoldova’s management. Our responsibility is to express an opinion on the FundAccountability Statement based on our audit. We have not performed any auditprocedures on budgeted amounts.

Except as indicated in the following paragraphs (i) to (iii) we conducted our audit of theFund Accountability Statement and notes in accordance with U.S. Government AuditingStandards issued by the Comptroller General of the United States. Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whetherthe Fund Accountability Statement is free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the FundAccountability Statement. An audit also includes assessing the accounting principles usedand significant estimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audit provides a reasonable basis for ouropinion.

(i) The following amounts, that are included in the Fund Accountability Statement,are considered to be outside the scope of our reporting, based on the terms asstipulated in the specific agreements referred to below:

As mentioned in Note 1 point 1.4 to the Fund Accountability Statement,USD 163,000 financing provided by the Government of Moldova to theUnited Nations Development Programme from the proceeds received by theGovernment of Moldova from the Millennium Challenge Corporation(“MCC”) as part of the “Grant Implementation Agreement for theDevelopment of a Millennium Challenge Compact”.

Note 1 point 1.4 to the Fund Accountability Statement, USD 4,412,576financing provided by MCA Moldova to the United States Agency forInternational Development MCC Financing received under a CompactAgreement.

(ii) We do not have a continuing education program that full satsfes therequirement set fortri in Chapter 3, paragraph 3.76 on Page 58 GAO-12331-GGovernment Auditing Standards. However, our current program provides for atleast 85 hours of contnuing education and training every year. In addition tothis, team members have each completed an additional 8 hours of training onspecific U.S. Government Auditing Standards and US audit requirements topics.We are takirg appropriate steps to implement a continuing educat:on programthat fully satisfes tne requirement.

(iii) We did not have an external quality control review by an unaffiliated auditorganization as required by Chapter 3, paragraph 3.96 on Page 66 GAO-12-331G Government Auditing Standards, since no such program is offered by theprofessionaj organization in Moldova. ‘A’e believe that the effects of thisdeparture from U.S. Government Auditing Standards is not material becausewe participate in the worldwide internal quality control review program of Ernst& Young, which require that individual partners and signing executives besubjected every 3 years, to an extensive quality review by partners andexecutives from other Ernst & Young offices.

In our opinion, subject to the scope limitation referred to above, the Fund AccountabilityStatement and notes referred to above present fairly, in all material respects, programrevenues, costs incurred and reimbursed, and commod;tes and technical assistanceprocured by MCA Moldova from financing provided by MCC for the period 1 October 2009to 31 December 2011 in accordance with the terms of the agreements and in conformitywith the basis of accounting described in Note 2 to the Fund Accountability Statement.

In accordance with U.S. Government Auditing Standards, we have also issued our reportsdated 5 July 2012, on our consideration of internal control over financial reporting andon our tests of its compliance with certain provisions of laws and regulations. Thepurpose of those reports is to describe the scope of our testing of internal control overfinancial reporting and compliance and the results of that testing, and not to provide anopinion on internal control over financial reporting or on cornIiance. Those reports arean integral part of an audit performed in accordance with U.S. Government AuditingStandards and should be read in conjunction with this Independent’s Auditor’s Report inconsidering the results of our audit.

This report is intended for the information of MCA Moldova and MCC. However, uponrelease by MCC, this report is a matter of public recci and its distribution is not limited.

Ernst & Young SRLChisinau, Republic of Moldova

Date: 5 July 2ái

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Independent Auditor’s Report on Internal Control


We have audited the Fund Accountability Statement of the Millennium Challenge AccountMoldova (‘MCA Moldova”) as of 31 December 2011 and for period 1 October 2009 to 31December 2011 and have issued our report on it dated 5 July 2012.

Except as indicated in the following paragraphs (i) to (iii) we conducted our audit inaccordance with U.S. Government Auditing Standards issued by the Comptroller Generalof the United States. Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the Fund Accountability Statement is free ofmaterial misstatement.

(I) The following amounts, that are included in the Fund Accountability Statement,are considered to be outside the scope of our reporting, based on the terms asstipulated in the specific agreements referred to below:

- As mentioned in Note 1 point 1.4 to the Fund Accountability Statement,USD 163,000 financing provided by the Government of Moldova to theUnited Nations Development Programme from the proceeds received by theGovernment of Moldova from the Millennium Challenge Corporation(“MCC”) as part of the “Grant Implementation Agreement for theDevelopment of a Millennium Challenge Compact”.

- Note 1 point 1.4 to the Fund Accountability Statement, USD 4,412,576financing provided by MCA Moldova to the United States Agency forInternational Development MCC Financing received under a CompactAgreement.

(ii) We do not have a continuing education program that fully satisfies therequirement set forth in Chapter 3, paragraph 3.76 on Page 58 GAO-12-331GGovernment Auditing Standards. However, our current program provides for atleast 85 hours of continuing education and training every year. In addition tothis team members have completed each additional 8 hours of training onspecific U.S. Government Auditing Standards and US audit requirements topics.We are taking appropriate steps to implement a continuing education programthat fully satisfies the requirement.

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(iii) We did not have an external quality control review by an unaffiliated auditorganization as required by Chapter 3, paragraph 3.96 on Page 66 GAO-12-331G Government Auditing Standards, since no such program is offered byprofessional organization in Moldova. We believe that the effects of thisdeparture from U.S. Government Auditing Standards is not material becausewe participate in the worldwide internal quality control review program of Ernst& Young, which require that local offices be subjected every 3 years, to anextensive quality review by partners and managers from other Ernst& Youngoffices.

The management or those charged with governance of MCA Moldova is responsible forestablishing and maintaining internal control. In fulfilling this responsibility, estimates andjudgments by management are required to assess the expected benefits and related costsof internal control policies and procedures. The objectives of internal control are toprovide management with reasonable, but not absolute, assurance that the assets aresafeguarded against loss from unauthorized use or disposition; transactions are executedin accordance with management’s authorization and in accordance with the terms of theagreements; and transactions are recorded properly to permit the preparation of theFund Accountability Statement in conformity with the basis of accounting described inNote 2 to the Fund Accountability Statement. Because of inherent limitations in internalcontrol, errors or fraud may nevertheless occur and not be detected. Also, projection ofany evaluation of the structure to future periods is subject to the risk that proceduresmay become inadequate because of changes in conditions or that the effectiveness of thedesign and operation of policies and procedures may deteriorate.

In planning and performing our audit of the Fund Accountability Statement of MCAMoldova for the period 1 October 2009 to 31 December 2011, in accordance with U.S.Government Auditing Standards, we considered MCA Moldova internal control overfinancial reporting (internal control) as a basis for designing our auditing procedures forthe purpose of expressing our opinion on the Fund Accountability Statement, but not forthe purpose of expressing an opinion on the effectiveness of the entity’s internal control.Accordingly, we do not express an opinion on the effectiveness of the entity’s internalcontrol.

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Our consideration of internal control was for the limited purpose described in thepreceding oaaQraph and would not necessarliy identify all deficiencies in internal controlthat might be significant deficiencies or material .a nesr- A material weakness is asignificant deficiency, or combination of s:gni cart deficiencies, that results in more thana remote likelihood that a material msstaterene of :he Fund Accountability Statementwill not be crevontad or detected by the entity’s internal control. We did not identify anydeficiencies in internal control that we consider to be material weaknesses, subject to thescope limitation referred to above, as defined above.

-cwever, we noted certain matters involving internal control and its operation that wehave reported to the management of MCA Moldova in a separate letter dated 5 July2012.

This report is intended for the information of MCA Mo’dova and the (MCC). —c ‘c. eupon release by MCC, this report is a matter of public record and its cistriutior, is notiirnited

Ernst & Young SRLChsinau, Republic of Moldova

2Date: 5 July 2012

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Independent Auditor’s Report on Compliance


We have audited the Fund Accountability Statement of the Millennium Challenge AccountMoldova (‘MCA Moldova”) and related notes, as of 31 December 2011 and for the period1 October 2009 to 31 December 2011, and have issued our report on it dated 5 July2012.

Except as indicated in the following paragraphs (i) to (iii), we conducted our audit inaccordance with U.S. Government Auditing Standards issued by the Comptroller Generalof the United States. Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the Fund Accountability Statement is free ofmaterial misstatement resulting from violations of agreement terms and laws andregulations that have a direct and material effect on the determination of the fundaccountability statement amounts.

(i) The following amounts, that are included in the Fund Accountability Statement,are considered to be outside the scope of our reporting, based on the terms asstipulated in the specific agreements referred to below:

- As mentioned in Note 1 point 1.4 to the Fund Accountability Statement,USD 163,000 financing provided by the Government of Moldova to theUnited Nations Development Programme from the proceeds received by theGovernment of Moldova from the Millennium Challenge Corporation(“MCC”) as part of the “Grant Implementation Agreement for theDevelopment of a Millennium Challenge Compact”.

- Note 1 point 1.4 to the Fund Accountability Statement, USD 4,412,576financing provided by MCA Moidova to the United States Agency forInternational Development MCC Financing received under a CompactAgreement.

(ii) We do not have a continuing education program that fully satisfies therequirement set forth in Chapter 3, paragraph 3.76 on Page 58 GAO-12-331GGovernment Auditing Standards. However, our current program provides for atleast 85 hours of continuing education and training every year.

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In addition to this team members . e completed each additional 8 hours oftraining on spec U.S. Government Auditing Standards and US auditrequirements topics. We are taking appropriate steps to implement acontinuing edu:a: program :‘t fully satisfies the requirement.

(iii) We did not have an - - quality control review by an unaffiliated auditorganization as required by Chapter 3, paragraph 3.96 on Page 66 GAO-12-331G Government Auditing Standards, since no such program is offered byprofessional organization in Moldova. We believe that the effects of thisdeparture from U.S. Government Auditing Standards is not material becausewe participate in the worldwide internal quality control review program of Ernst& ounç. which require that local offices be subjected every 3 years. to anextensive quality review by partners and managers from other Ernst& Youngoffices.

Compliance with agreement terms and laws and regulations applicable to MCA Moldova isthe responsibility of MCA Moldova’s management. As part of obtaining reasonableassurance about whether the Fund Accountability Statement is free of materialmisstatement, we performed tests of MCA Moldova’s compliance with certain provisionsof agreement terms and laws and regulations. However, our objective was not to providean opinion on overall compliance with such provisions. Accordingly, we do not expresssuch an opinion.

The results of our tests disclosed no instances of noncompliance that are required to bereported here under U.S. Government Auditing Standards.

We noted certain immaterial instances of noncompliance that we have reported to themanagement of MCA Moldova in a separate letter dated 5 July 2012. This report isintended for the information of MCA Moldova and the Millennium Challenge Corporation(MCC). However, upon release MCC, this report is a matter of public record and itsdistribution is not limited.

Ernst & Young SRLChisinau, Republic of Moldova

Date: 5 July 2012-— J

I

if

ERNST& YOUNG

FUND ACCOUNTABILITY STATEMENTOF THE MILLENNIUM CHALLENGE CORPORATION (MCC) RESOURCESMANAGED BY MCA MOLDOVAUNDER THE COMPACT AGREEMENT DATED 22 JANUARY 2010SIGNED BETWEEN THE UNITED STATES OF AMERICA ACTINGTHROUGH MILLENNIUM CHALLENGE CORPORATION AND THEREPUBLIC OF MOLDOVA ACTING THROUGH ITS GOVERNMENTFOR THE PERIOD FROM 1 OCTOBER 2009 TO 31 DECEMBER 2011

MILLENNIUM CHALLENGE CORPORATIONMCA-MOLDOVA PROGRAM

-- F_UND ACCOUNTABILITY STATEMENT

Period 1 October 2009 to 31 December 2011

CONTENT

FUND ACCOUNTABILITY STATEMENT: COMBINED FOR COMPACT, 609(g) AND CIF 3

FUND ACCOUNTABILITY STATEMENT: COMPACT 4FUND ACCOUNTABILITY STATEMENT: 609(g) 5FUND ACCOUNTABILITY STATEMENT: CIF 6

NOTES TO FUND ACCOUNTABILITY STATEMENT 7

1 GENERAL 71.1 Background 71.2 Program OIective 81.3 External Agencies 101.4 Part of Program implemented by other organization 10

2 BASIS OF PREPARATION 113 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 12

3.1 Foreign currency 123.2 Revenues 123.3 Costs 133.4 Interest and similar 133.5 Commodities 133.6 Cash 143.7 Receivable 143.8 Payable 143.9 Commitments 143.10 Taxes 143.11 Continuity of the operations 14

4 REVENUES 154.1 Revenue (Compact) 154.2 Revenue (CIF) 154.3 Revenue (609(g)) 16

5 COST INCURRED 166 CASH 177 CASH RECONCILIATION 188 INTEREST GAINEDAND RETURNED 199 RECEIVABLES AND PAYABLES 2010 COMMODITIES 2011 DETAILEDPROJECTPAYMENTS BY BUDGET LINE INCURRED TO DATE 2112 COMMITMENTSANDACCRUALS 22


FUND ACCOUNTABILITY STATEMENTCOMBINED FOR COMPACT 609(g) AND CIFPeriod 1 October 2009 to 31 December 2011

(all amounts in USD. unless stated otherwise)

Budget Actual Entry Intoforthe forthe ForcePeriod Period to Date Notes

FUNDS RECEIVED - TOTAL 11.359 317 11359,317 4Program Funds 11,358.926 11.358,926Tax Refunds -

Interest 391 391 8Other

COSTS INCURRED- TOTAL 11.841.078 11.279.395 11 279.395 5

1. Road Rehabilitation Project 463.520 466.009 466.0091,1 M2 Saraten. - Drochia Junction .:5.J”. 466,009 466 0091.2 r,’2 Drocha Junction - Otaci Sludes2. Transition to High Value Agriculture Project 6.296.126 5.920.717 5.920,71721 RehabilIaton o(CIS ‘CISRAi 625,614 350 588 350.5882.2 frngatlon Sector Reform SPAt 1,269925 1,148 316 1148,3152.3 Access to Agricultural France (AAF, 68.009 8 9,23824 GrowIng High Value Agriculture Sales 4 4’2 576 4,412.576 4,412,5763. Monitoring & Evaluation 19.759 16.759 15,7593.1 Studies & Su”.”s . -

32 Capacit Building ‘5,759 15759 ‘o3.3 Data Quality Review

3.4 Evaluation - -

3 5 Public Outreach for M&E 4.000 -

4. Program Managemenl & Oversight 5.061 674 4.876.910 4,876.9104,1 MCA Moldona 2.C93.C’Ty 2.002.940 2,002.9404 2 Fcal Agent & Procurement Agent 2 968 506 2 8’3 071) 2.873 0704.3 Audit -

NET INCREASE (DECREASE) IN FUNDS ‘- 79.922 79.922

CASH AT THE BEGINNING OF PERIOD , - - -

CASH AT THE END OF PERIOD‘ 79,922 79,922 6:7

The above Combined Fund Accountability Statement and accompanying notes set out on pages 7 to22 were anproved by the program management on 12 April 2012 and signed on its behalf py’

Chief Execulive Officer ‘ iT”

Valentina Badrauj

Director of Ac-n s’rar no and Finance: (‘.J’t1— Elena Sodu

Fiscal Agent .Ianager 4

_____________

Muneanu

3


FUND ACP.OUNTARILITY STATEMENTCOMPACT AGREEMENT NUMBER: COMO8MDAI0001Period 1 October 2009 to 31 December2011

all amounts in LJSD. unless staled othenvise)

Budget Actual Entry Intoforthe forthe ForcePeriod Period to Date Notes

4.1FUNDS RECEIVED - TOTALProgram FundsTax RefundsInterestOther

COSTS INCURRED-TOTAL1. Road Rehabilitation Project1.1 M2 Sarateni - Drocha j.acion1.2 M2 Drocha Junction - Otac Studes2. Transition to High Value Aqrculfure Project2 1 Rehabihtation of CIS ‘ R422 Irrigation Se”to R&orn . ‘SRA:2.3 Access to Aqr:cultiir F narice AAF2.4 Growing H9h Value Aqnculture Sales3. Monitoring 6 Evaluation3.1 5’ 1 an Surveys3.2 Capacity Building3.3 Data Quality Review34 Eaation3,5 Pjr c Outreaci, for M&E4. Program Management & Oversight4.1 MCA Moldova4.2 Fiscal Agent & Procurement Agent4 3 AuditNET INCREASE (DECREASE) IN FUNDSCASH AT THE BEGINNING OF PERIODCASH AT THE END OF PERIOD

8.4.85.980 8.4.85.9808,485.818 8,485.818

162 162

4.0002.169,5691,1 28. 7401 040 829

/‘.erel Lniaun,.

58.935.697 8.410,564 8,410.564463.520 466.009 466.009:53 520 466.009 466 009

6.282.8.49 5.907 4.41 5,907,441525,614 350 588 350.588

1,256,650 1,135039 1,135,03988.009 9.238 4 238

1412576 4,412.576 4.412.57619,759 15.759 15,759

15,759 15759 15,759

2,021,3551.07 5, 152

946,203

2,0213551,0 75, 152

946 203

75,416 75.416 6;7- 6:7

75,416 75,416 6:7

The above Compact Fund Accountability Statement and accompanying notes set Out on pages 7 to22 were apOroved by the proctram management on 12 April 2012 and signed on its behalf by

Chief Executive Officer:

Director of AdminIstration and Finance

Fiscal Agent Manager

/V4enijnaBa1

MILLENNIUM CHALI ENGE flORPORATIONMCA-MOLDOVA PROGRAM

FlINt) acr.OLINTABILJTY cTATFMFP9T609(g) GRANT AGREEMENT NUMBER: GRO8MDAI 0001Period 1 October 2009 toll December 2011

(all amounts In lisP, unless stated otherwise)

FUNDS RECEIVED. TOTALProgram Fundsax RefundsInterestOther

COSTS INCURRED. TOTAL1. Road Rehabilitation Project1.1 M2 Sarateni - Drochi Junction1 2 1J2 D’oct’a Junction - Otaci Studies2. Transition to High Value Agriculture Project2.1 Rehabilitation of CIS ICISRAi22 Irrigation Sector Rolorm HSRAi2 3 Access to Agricultural Finance (AAF)2 4 Growing High Value Agriculture Sales3. Monitoring & Evaluation3.1 Studies & Surveys3 2 Capacity Building3.3 Data Quality Review3.4 Evaluation3.5 Public Outreach for M8E4. Program Management & Oversight4.1 MCA Molctova42 Fiscal Agent & Procuremeril Agent4.3 AudIt

NET INCREASE (DECREASE) IN FUNDSCASH AT THE BEGINNING OF PERIOD

_________

CASH AT THE END OF PERIOD

7I Vinreuntnj

Budget Actual Entry Intoforthe forthe ForcePeriod Period to Date

2.860.061 2.860.0612.859.832 2.859.832

229 229

2892,1O5 2,855.555 2.855.555

2.892,105 2,855,555 2.855.555964,338 927 788 927.788

I 927.787 1,927.767 1 927.767

4.506 4.506

4.506 4,506

Notes

4.3

5

6:76:7

6:7

The above 6091g1 Fund Accountability Statement and accompanying notes set out on gages 7 to 22were approved by the program management on 12 April 2012 and signed on its behalf by

Chief Executive Officer

Director of Administration and Finance

Fiscal Agent Manager

tina8’


FUND ACCOUNTABILITY STATEMENTCIF AGREEMENT NUMBER: GROSMDA10001Period 1 October 2009 to 31 December 2011

(all amounts n USD. unle stated otherwise)

FUN OS RECEIVED - TOTALProgram FundsTax RefundsInterestOther

COSTS INCURRED - TOTAL1. Road Rehabilitation Project1.1 M2 Saate— Dcn a Junction1 2 ‘I2 Drocfl:a Junction - Otaci Studies2 TransItion to High Value Agriculture Project2.1 Rehabilitation o’ IS CISRA)22 Irngation Sector Reform ‘ISRAi2.3 Access to Agricultural F nance AAF2.4 Growing High Value Ag’icjllure Syes3. Monitoring & Evaluation3.1 Studies & Surveys3.2 Capacity Building3 3 Data Quality Review3 4 Evaluation3 5 Public Oiireac’4. Program Management & Oversight4.1 MCA Moldova4.2 Fiscal Agent & Procurement Agenl4 3 AudItNET INCREASE (DECREASE) IN FUNDSCASH AT THE BEGINNING OF PERIODCASH AT THE END OF PERIOD

The ii-. Fund Accountability Statement and accompanyng notes set out on pages 7 to 22were approved by the program “anaunen’ on 12 April 2012 and signed on its behalf by:

Chief Executive Officer.

_______

Valer’l na

Director of Administration and Finance.. ‘o’2’ c

,/-

Fiscal Agent Manager: /,y,oreiMuifeanu

Budgetfor thePeriod

Actual Entry Intofor the ForcePeriod to Date Notes

4.2

5

13.276 13.27613276 13,276

13,276 13.276 13.276

13.276 13.276 13,276

13,276 132’S 13,276

6


N(JTFS TO FIINri A(COIINTARI? TV STATFMFNTPeriod 1 October 2009 to 31 flecember 2011

(all a,m,untx in LJ,D. i,nlg xfaro4 nth.n*,ic,.j

1 GENERAL

1.1 BackgroundThe United States of America through the 1errijm Chir ‘ec;e Corporation Ithe MCCI and theRepublic of Moldov executed a Millenn urn Cha Ienqe C ‘impact nn ,ianuary 22 2010 (the “Compact)that sets forth the general terms and conditions on which ‘CC will provide funding not to exceed USO262 million to the Government of Moldova (the ‘Government) for a Millennium Challenge Accountprogram to advance economic growth and reduce :‘.v’i, ‘ Molctova (the Program’i. The Compactshall remain in force for five(S) years as from Snperrber ‘‘ 2010 the date of Entry into Force Alsothe United States of Amurica acting through the MCC. and the Government executed a Grant andImplementation Agreement on October 7. 2009 (the 609tg) Agreement”) that Sets forth the generalterms and conditions on which MCC provided funding not to exceed USD 3.19 million which activitiesfacilitated the development and implementation of a Miltennium Challenge Compact.

Based on the Government decision Ni 161 daleC ftarh 4 2010 was established he pubic institutionMoldova Millennium Challenge Account MCA odDvai with the purpose to manage the investment.financial, arid technical assstacce proiects funded by the MCC and other donors implementaton ofthe Compact between the United States of Arnenca acting through the MCC, and the Republic ofMoldova. Also the above mentioned decision approved the Bylaws of the MCA Moldova

t.’CA Moldova has the following bodies(i) the Steering Committee of the Institution (hereinafter referred to as the Steerng C’i--”ne is

the superior management and supervising body of the MCA Moldova The Steenrig Committee isthe independent arid final decisron’making bcidy regarding ‘hc f..’da”v’ta issues relating to theProjects,

(it) the Executive Committee of the MCA Moldova hereinafter referred to as the ExecutiveCommittee’) is the independent decision-making body of he MCA Moldova arid has authority tolake final decisIons regarding a limited number of issues as set forth in the 13’, aus

(iii) the Consultative Group of the MCA Moldova (hereinafter ‘eferred to as the C nisu ta yE- Group’)recommends arid submits general proposals regarding the .mpiementation of the Projects. Suchrecommendations and proposals are sent to the Steering Comrn,ttee through its represen’a’iveson the Steering Commit’ee

(lv) the Management Unit of the MCA Moldova (hereinafter referred to as the ‘Management’irepresents the executIve body of the MCA Motdova and is responsible for the daily managementof the Projects

The funds disbursed under 609(g) Agreemenr prior to the date of set up 01 the MCA MoliJciva winiefinanced by the UNDP based on the agreement signed between the Government of Republic ofMoldova and UNOP

The personnel of MCA Moldova. who was selected basec on the competitive basis, was enrolledstarting from July 1, 2010 after the approval by the MCA Moldova Steering Committee

.


NOTES TO FUND ACCOUNTABILITY STATEMENTPeriod 1 October 2009 to 31 December 2011

(all amounts In USfl unless stated otherwicp)

________

1 GENERAL (continued)

1.2 Program ObjectiveThe Program objective is to noivase ncomes Ihrouqh increased agricultural productivity andexpanded access to markets and sen. ces through improved roads. The Program cnnssts of theTransition to High Value Agriculture TH’.’ Project and the Road Rehabilitation Project RRP

Transition to )Uqh Value Arlculturo Pro)act ($101773401)

The objectives of the THVA Project are to; (I) icease rural incomes by stimulating growth ri irrccrehigh value agriculture; and ‘Ii) catalyze future investments in high value agnzulture by establis .i asuccessful and suslanable model of rrigatlon system and water resource management vol aconducive nst tutinnal and policy environment for irrigated agncutture

The THVA Project c:’ssIa ci “v fal1owing Act’vties:

(I) Centralized Irrigation System Rehabilitation Activity (CISRA)From !“a’ p’s. s’ uices y lbs SIc t will be ‘s ‘“u’, up In eleven 11( irrigation systems cover’nqa command area “1 up to approximately 15,500 hectares, will be provided technical assistance andcapacity build ng to support legal transfer of management and operations of MCC-ret’abhtatedsystems from the Government to Water User Associations.

(ii) Irrigation Sector Reform Acfivity (ISR4)The ISRA is designed to: establish the enabling environment and institutional capacity required toensure effective management (opei’ations mantenance and financingi of lee rehabilitated rrigat’orisystems (thereby better ensuring their Sustainabilityl: and morove fidoldova s capacity to manage ifslimited water resources in light of increasing demand for water and the expected effects of climatechange.

(iii) Access to Agricultural Finance iAAF ActivirvThe objective of the AAF Activity

• to provide term f’rancinc needed, to support increased ruestrle”t in live high valueagriculture Supply chain, to ¶ac’litate transition to high value agriculture with particular focuson serving farmers and enterprises operating in live irrigation systems targeted forrehabilitation

• Improved sorting and packing of produce as well as the ability to extend the production andmarketIng season, can assist Moldoven pioducers to become moie con net ire in doirestinand export markets and to seli their production at a higher pnce.

7L



(all amounts in USO. unless stated otherwise)

I GENERAL (continued)

1.2 Program Objective (continued)

(iv) Growing l4igl, Value Agriculture SaIe (OHS) ActivityThis activtv cii’ be administered by the United Sates Agency for International Develooment itl’eUSAID From cvrc a sources of this activity will be provided market development support andechrrical assistance and training to help producers and agr’busiressen better access high value

agriculture markets and support the shift to high value agriculture at the oroduction and post-harvestlevel arid promote sustainable agricultural practices (reier to pont 1.4).

Road Rehabilitation Prolict ($132M0,000)

The oblectives of the RRP are to. (i) increase incomes of the local population by reducing the cost oftransport goods and services: (ii) reduce losses to the natorral economy resulting from thedeteriorated road conditions: and (iii) reduce the number of road accidents trough improved trafficconditions.

The RRP Consists of the following Activities.

(1) M2 Road ActivitytICC Funding will be used to rehabilitate and upgrade a 93 km portion ot the M2, beginning nearSarateni at the southern end and end ng at he lunclion with the R7 road west to Drochia (theDrochia Junction) at the northern end. MCC Funding il’ also be used to replace or upgradesscc u:e’l utr..ct’sn within this segment of the M2, Such as bridges, drainage systems and culverts.to .mprove road maintenance and safety. The M2’s improsement is expected to reduce vehiclenoeraling costs, reduce travel time, Thange maintenance costs, cause an increase in the value ofgoods moved and in frequent travel.

(II) Siipplnirienial Fe.vsibrlity StudyMCC Funding will also be .. cvds.bilit.? study/environmental and social imoact assessment forthe road segment from Arioneati to the border crossing in Otaci, detailed design work a resettlementaction plan and an updated environmental and social impact assessment for the entire road sectionfrom the Drochia junction to the border crossing in Otaci.

Monitoring and Evaluation (S3.536.91)

The Monitoring and Evaluation (MAE) Project compnses two components: The Monitoring Componentand Evaluation Component.

To monitor progress toward the achievement of the impact and outcomes, the Montonng Componentof the MAE Plan will identify the indicators, the sources and methods for data collection, the frequencyfor data collection the t,.’vllrre and format for reporting on each Indicator and the method by whichthe reported data will be validated

The evaluation component of the MAE Plan will contain ‘ree t’,ipes of evaluations: impactevaluations: project performance evaluations, and special Studies. Trw evaluation component of theMAE Plan will describe the purpose of the evaluation, methodology. timeline. required MCCapprovals, arid the process for collection and aralyss of data for each evaluation

c



(all an,ounts in USD. unless slated otherwise)

I GENERAL (continued)

1.2 Program Objective (continued)

- _... Audit l$23.847.66a)

The main objective uf Os component is general Program oversight and administration, ncluding nanciatmanagement and procurement management which are actually outsoj’ced to two internationalcompanies

1.3 External AgenciesDunrig the reporting period 1 October 2009 — 31 December 2011 MCA Moldova was supported by two2) external agencies — Louis Berger SAS as the Fiscal Agent for the penod up to it November lO 1ard

booz Allen Hamilton Inc as the Procurement Agent. The Fiscal Agent is resDonsible for executon ofpayments financial management and accounting functions of MCA Moldova, enereas the n’• v’ ‘

Agent supports the administrelion, management and execution of MCA Moldova s procuremen: ai, t as

Starting 17 November 2011 the Fiscal Agent has been replaced . ‘0 Booz Allen Hamilton Inc as theInterim Fiscal Agent.

1.4 Part of Program implemented by other organizationUn’ted Nations Develo) went ProgrammeAn agreement has been signed on 20 October 2009 between the United Nations DevelopmentProgramme (UNDP’) and the Government of Moldova in which the two parties have agreed to cooperate ri providing support to the development and negotiation of the Millennium ChallengeCompact UNDP Agreement” i

In accordance .s ‘0 the agreement the Government of Moldova has p1acd at the disposal of UNDP a.,ISD 163,000 cort’hution to be used for f.narictng of indirect costs rcuved by ‘,NDP headguartersand country office structures in providing General ‘tnnnCe’nent Support services. To cover theGeneral Management Support services the contribution 1 C ,ids a ‘ee of 3%

In accordance with the article 3 of UNDP Agreement- the contribution was lobe administered by UNOP in accordance with UNDP regulations, rues

policies and procedures, applying its normal D’ccedures for execution of its prcects- protect management and expenditure shall be pc,errect by regulations, rules policies and

procedures of UNDP

In accordance with article 6 of UNDP Agreement- he contribution shalt be subject exclusively to the internal and external auditing procedures

provided for the financial regulations, rules, policies and procedures of UNDP

The contribution was paid directly by MCC to UNDP

The above mentioned 000tnbutirin shall he subject exclusively to th internal and external auditingprocedures provided for in the financial regulations, rules, policies and

,‘- “ of UNOP.



(all amounts , USO i,nlpsc etated othp,wice)

I GENERAL continued)

1.4 Part of Proqram implemented by other organization (continued)

UNOP expenses financed from the respective cc.ntnbuto are included in the Fund AccountabilityStatement based on the report received from UNDP on use of the contribution refer to Note 51

The United Stat.s Ariency for lnternatipnI DeveIopmtA memorandum of understanding was sgned on 12 May 2011 between The United States Agency forInternational Deaelopc-ent çUSAiD’), the Millennium Challenge Corporal:on and the MilenniurnChallenge Acccunt Moldova ( USAlO Memorandum of Understanding i

In cDucar.:e with ‘.jSAID Memorandum of UnCerStarct.np it is expected that IJSAID wilt managethe GHS Actvty under ‘Ce USAiD Agricultural Compett’xeress and Enterprise D. e - u—er’ prolect

ACED Project i through the contractor selected by U SAID to implemerl ACED ProjectThe respecti’e memorandum specifies that fdCA us responsible for the first 3 actvties of the THVAPrn1et refer to point 1.2 above) were USAID expects to manage activity 4 of the THVA Project underGlS ACt’ity

Amounts hSve beer paid ‘.xrfl( by \ICC to USAID

In -cr.are with the Program tmcvernentelion Agreement signed between the United states ofAmerIca a:t’ng through MCC and the Republic of Moldoxa dated January 22. 2010, seclon 2.11 (e),neither the Govern—erit nor MCA Moldova. as the Governments Permitted Designee, will beresponsible for Protect a and achieving corresponding targets (indicators and outcomes) forwhch I.,SAD s so & responsiblity under he Administration Agreement.

2 BASIS OF PREPARATION

The Fund A cOi -‘-ii Stxr-,,’ is prepared on a Cash basis On this basis revenue is recognizedv.hen received rather -n when earned, and expecses are recognized when paid rather than whenincurred.

At the same t,me additional schedules listed below are preoarod on the accrual basis:Accounts0ayable and Receivaple

- C.ommodities — Depreciation of Fixed Assets and Amortization of Intangibles during theproject life (5 years(

- Commitments and Accruals.

(Z/



(all amounts in USID unless stated otherwise)

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1 Foreign currency

(a) Functional currency

The Fund Accountability Slalement as well as the Notes to the Fund Accountability Statement arepresented in US Dollars 1USD) that is also the functional currency

i) Transaction balances

For non-USD payment transactions handled via the Common Payment System CPS i. the conversionrate of the CPS is used by posting the payment entnes with the official rate or making the necessaryadtustment for each individual transaction. Differences to the cost entry are chared to a 1oreignexchange-gainsloss analytical code using the same budget codes as the urrderlynq transaction

°or any other USD to ocal currency conversion, dailytoreign exchange—rates are applied, based onme daily exchange rates published by the National Bank of Moldova www born md) reOuced by 0 02MDL-USD as cpr Bank Agreement prox-sions Conversion rates are entered into the automatedaccounting r,is:ern based on bank account statements.

The USD equivalent of payments performed in local currency and the balances of all nori-USO cast,and bank accounts are booked using the commercial vxia’e rate of me last conversion of B.CMoldova Agroindbank S.A.. Any exchange rate gains/losses Oerrtied as per locai account(s) arebooked as Other Expenses.

Foreign currency m-r-rn: ir are translated into the functional currency c- ‘i file official exchangerates prevailing at ho tales of transactions

Foreign exchange gains and losses resulting from the settlement Cl Such rarsnt c-s a-s recorded Inthe same budget tine as the transaction

3.2 Revenues

Revenues are recognized at the date of the receipt, rather than when earned

Rever-es consist of Program Funding and Compact Implementation Funding received from MCCunder Compact collectively referred to as MCC Funding) and for expenditure incurred in furiheranreof the Program and Proceeds received from MCC under 609(g) Agreement, where such revenues areused for:

(i) Disbursements made by MCC to MCA Moldova in the Permitted Account lone or more bankaccounts established by the Government :r-.’o.gh MCA Moldova and acceptable to MCC);and

(ii) Direct payment by MCC to th relevant provider of goods wnrkc or services Liv theimplementation of the Program.


NOTES TO FuND ACCOUNTABILITY STATEMENTPeriod 1 October 2009 to 31 December 2011

(all amnunrc ri (iSO, unlec dated rst’frerwftp)

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

3.3 Costs

Costs are recognized when paid, rather than when incurred

Costs include payments ride tr the:(I) Expenditure inc,.’rec or the De. cuni of a Mulecnium Challenge C3moac’ envisioned

under6O9(gl Agreement:(Ii) Program acfivities envisioned under Compact dent:fied as Program Funding:(Iii) Financial management and procurement icti ties as well as start-up activities envisioned

under Compact and identified vs Compact Imp’en,entation Funding

Settlements of incurred costs are considered as disbursements and constitute:(I) Release of the MCC Finding from the Special Accounts in USD and EUR and Local Account

in MDL or from the cash on hand in USD and MDL:(ii) Payments made by the MCC through the Common Payment System to providers of ;‘i.r’,

worfrs or services of MCA Moldova against Payment Request Forms submitted by ie ciscalAgent of MCA Moldova.

3.4 Interest

‘-iteresl or other similar earnings represents the interest income that accrues and is paid on MCCfunding onto the Permitted Accounts, that is reimbursed to MCC on a quarterly Oasis, within 10 daysafter the quarter end.

3.5 Commodities

Cuinmod:es represent fixed assets and intangible assets purchased from the funds received fromMCC under above mentioned agreements

Feed assets represent commodities with a value higher than MDL ‘2(10 or IJSD equivalent of USC255 All mobile phones purchased with funds received from MCC are also coris.de’ed to be FixedAssets, regardless of the r value.

Intangible assets acquired separvieiy are measured on initial recognition at cost Following initialrecognition, intangible assets are carried at cost less any accumulated amortization and accumulatedimpairment losses The useful lives of intangible assets are assessed in accordance with the specifIcsof the assets and their contractual terms.

Because the modified cash basis accounting is used. MCA Moldcva commodities wit not becapitalized in the General Ledger and there’ore here will be no depreciation taken. Their cost sell beexpensed or the date they are purchased. at the same time they will be tracked in the Fixed AssetsRegister throughout their useful life.

In the events fixed asset is repaired, rebuilt or modernized by a third party, the costs incurred will berecognized as expenditures.

For the purpose of reporting to the Ministry of Finance. cominodit’es are depreciated on a slraighl-nnedepreciation method The details about the accrued depreciation charge for the Ministry of Financereporting purposes are reflected in Note 10.

MILLENNIUM CHALLENGE CORPORATIONMCA•MOLDOVA PttOGRAM

NOTES TO FUND ACCOUNTABILITY STATEMENTPeriod 1 October 2009 to 31 December2011

.ll mr,i,nts ‘r, I lSfl unlace efatpd r,thpn’i svj

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

3.6 Cash

Cash and cash egusalents include amounts held in bank accounts in JS dciar ‘USO). Euro (ELR’)and Moldovan Lets rMDL’l as well as cash on hand ye c in JS dollar USD , and Moldovan Leij(MDL).

3.7 Receivable

Receivebte balance, include SmountS cad to OrovOcry of services and goods for Program xci esin excess of fiscal invoices received from sjrouers

3.8 Payable

Payable balance include amounts billed and acceoted as liability by MCA Moldova by providers ofservices and goods for Program activities for which no payments have been made

3.9 Commitmens,

Commitments include the cumulative disbursements to-date and all unliqucdated contracts that havebeen signed by the end of the reporting period xth be total amount of the contract price established.

For unliquidated contracts, commitments include Only option Derocs that have been exercised.Commitments also include costs not covered b DStrSc’IS

Revaluation of Non-USD Commtm&ptsWhere contracts are registered tot payments in non-USD currency. MCA Moldova reviews non-USDcommilments to ensure that budget limits are not uvceectvd

The non-USO commitments are revalued as follows- Closed (Paid) Commitments are revalued on a monthly basis according to the payment amounts.using the commercial exchange rate of the last conversion (see No’e 3 1).- Future (Projected) Commitments are revalued on a monthly basis, The revaluation s performedbased on the exchange rates published by the National Bank of Moldova on the last nusness day ofthe month

3.10 Taxes

In accordance with Chapter 2 8 of the Compact agreement, except for the salary related taxes andsocial contribution for contracted Moldovan residents, the MCC Funding, accrued interest andProgram assets ar, free from any taxes imposed under Iaw in effect in the Republic ot Moidova

3.11 Continujty of the operations

The Fund Accountability Statement and Notes are prepared on the basis that the Program willcontinue its activity in accordance with the Compact provisions. MCA Moldova managementestimates that MCA Moldova will achieve the activities included in the Compact within the set frame

MILLENNIUM CHALLENGE CORPORATIONMCA.MOLDOVA PROGRAM


lall amountS in IJSD. unless crated nth#rwis)

4 REVENUES

Revenues consist of:

31 December 31 December2011 2011

Currency Currey— USD

Financing received on t.1C.\ 4cldcvaSpecial Account. USO IJSD 1 567.755 1.567J5Financing received on MCA Moldova

56 930 74 146Special Account. EUR EURDirect payments made by MCC USD 9,717,025 9.717InterestTotal

— 11.359.317

4.1 Revenue (Compact)

31 December 31 December2011 2011

Currency USD

1.125.700 1125.700

56.930 74,146

7.285.972 7,285.972‘62

8,485,980

Direct payments by MCC include USO 4,412.576 paid directly to USAID in accordance with theagreement between MCC and USAID

4.2 Revenue (CIF)

31 December2011 31 December 201Curr.ncy Currency USD

USD 13.276 1315

13. 276

15

‘1anc”.g’v”el .d on MCA MoldovaStc l A:n.it USD

fl’.CdOnMCAMoldovaSpecial F’” EURDirect payments made by 1.1CCInterestTotal

Currency

USD

EURUSD

Decl payv1$ made by MCCinterest

Total

Financing received on MCA MoictovaSpecial Account. USDDirect payments made by MCCInterestTotal

5 COST INCURRED

COSTS INCURRED - TOTAL1. Road Rehabilitation Project1.1 M2 Saraleni - Drochia Junction1 2 M2 Drochia Junction. Otaci Stud en2. Transition to Nigh Value Agriculture Project2.1 Rehab FusIon of CIS CISRA)2.2 Irrigation Sector Reform IISRA12.3 Access to Agncultural Finance (AAF)2.4 ‘c’.v’r ‘-gh Value Agriculture Sales3. Monitoring & Evatuation3.1 ‘i en Surveys3.2 oa. ‘, Bu drnq3 3 Data Quality Review3 4 Evaluation3.5 Pblic Outreach for ff&E4. Program Management & Oversight4.1 MCA — Moldov4.2 Fiscal Agent & Pocurmect Agent4.3 Audit

31 December2011

_______________

USD

442,0552.417,777

2292.860.061

Budget Actualforthe forthe Variance BudgetPeriod Period Realization Realization

USD USD IJSD %

11841078 11 279.396 561,683 95%463,520 466.009 (2,489) 101%463520 s : 2489’ 101%

-. 0%

6,296,125 5.920,717 375,408 94%525614 350,588 175,026 67%269926 1,148,315 121.611 90%88009 9.238 78,771 10%

4,412575 4.412.576- 100%

19759 15,759 4,000 80%- . 0%

15.759 15.759- 100%- 0%- 0%

4.000 0%184,764 96%

:1..‘ 6 96%

94,626 97%• 0%

Included in line 2.4 Growing High Value Agriculture Sales is the amount of USO 4.412,576 paid toUSAID directly by MCC,

Included in line 4.1 MCA Moldova is the amount of USD 163 000 paid to UNDP directly by MCC.

Timing vanance related to payments made earher than budgeted (January and February 2012)

MILLENNIUM CHALLENGE CORPORATIONMCA-MOLOOVA PROGRAM

NOTES TO FUND ACCOUNTABILI’rY STATEMENTPeriod 1 October 2009 to 31 December 2011

(all amounts in VSD, inle,s stated otharwi,.)

4.3 Revenue (609(g))

_c311!!!1_cy.

USOUSD

31 D.cembev 2011Currency

442,0552.417,777

4.0006061,674

$63 696

4,876,9102 002 9402,873,970

C,



(all amounts in USO. unless stated othiwise)

6 CASH

As of 31 December 201 MCA Moldova held sash balances as indicated below.

For trCnlotien purpccca tho following ratoc ba”o been uSed baced on the official exchange rate of 1hoNational Bank of Moldov as at 31 December 2011 USD 1 MDL 11.7154: EUR I = MDL 150737);

Deicription

Bank accountsSpecial Account USD CIF/CompactLocal Account MDL CiFiCompactLocal Account THVA AAF MDLCompactSpecial Account THVA AAF USDCompactSpecial Account THVA EUROCl° ‘CompactTotal CIF;Compact

Local Account MDL 609)9)Opecial Account USD 6091g1Total 609(91

Total

Petty cash

Total

31 31December December

Currency 2011 2011of the

Account Currency 1ISD Note

uSD 1.169 1,169MDL 1,202 101

MDL - -

MDL

56930 “44i375416 7(a)

2251(57236’ MDL 3.455 29622511572885 JSD 4.210 420

4.506 7(bl

79,922

2251157288322511572878

22511756064

22511756065

22511760069

79.922

MILLENNIUM CHALLENGE CORPORATIONMCA.MOLDOVA PROGRAM

NOTES TO FUND ACCOIJNTABILITY STATEMENTPeriod 1 October 2009 to 31 December 2011

t1l .,,,,ouotg ,, UD. nIo- vI.,td oShows)

7 CASH RECONCILIATION

7(a) The cash reconciliation ‘-r Compact Agreement is as follows

5pesIaIaccount Local Special Accou

Total (USD) (MDL) Account (EUR) ntin USO in USO in USO in MDL in USO in EUR

Balanceaa at 1 October 2009 - - - -

Funds received 1,199846 1,125.700 - -

‘ 45 56.930Interest earned 162 151 11 127 -

Interest converted 9 9Other cash received (FXIranslation income) 63

- 63 743 - -

T’ans(ers to \1D account iS 3i5i’I ‘15,36013,057,100 -

Total Repler.psi’,ents 1.200080 10500 1.115.434 13.057.970 74,140 56,930

LessPayments made i 124.510 9.186 1,115324 13.33’ 936 - -

Interest returned to USAGovernment 45 145 - -

Interest converted 9- 9 105 -

Other cash payments (FXtranslation loSSl - .

- 24,727 -

Total Disbursements 1,124,664 9?31 ,,116 333

Balanceas at 31 December 2011 75,416 1,169 101 1,202 74146 56,930

4,’.


NOTFS TO FUNfl Ar.flOLINTARII TV STATEMENTPeriod 1 October 2009 to 31 December 2011

(aft an eirnti ii, USO. ,,nloxx vtxte, othewice)

7. CASH RECONCIUATION continued)

7(b) The cash reconciliation for 609(g) Agreement is as touows

Balanceas at 1 October 2009

unds receivednteest earnednierest converted

Other cash received (FX translationIncome)ransprs to MDL SCcoufli

Total ReplenishmentsLessPayments madenterest eturned to USA Government

Interost convertedOther cash payments IFX translationloss)Thi D sI rrsemerttsBalanceas at 31 December 2011

8 INTEREST EARNED AND RETURNED

The nterosl earned on funding received from MCC was USD 391. of which USD 361 was returned tothe United States of America Treasury For reporting purposes interest returned is included in thecategory 4.1 UGA Modcsa — Other Expenses.

SpecialAccount

Total (USD) Local (MDL)in USD in USO in USO

Account

in MDL

442.055 442.055 -

229 132 97 1,13702 92

250 - 250 1.845‘4205 Ci 420 4 97 CQ

442,626 21,779 420,847 4.980.975

437.812 17,353 420.459 4,951.837216 216 - -

92 - 92 1,115

- -

- 24,56817,569 420,551 4.977,520

4,506 4,210 296 3,455



(all amounts in USD. unless qtpte4 nrhp,wice)

9 RECEIVABLES AND PAVABLES

As of 31 Decerber 2011 receivables and payables COnsisted of:

ReceivablesPayables

10 COMMO0ITlS

CostBalanceas at 1 October 2009AdditionsDisposals

______________________

Balanceas 8131 December2011

Depreciation chargeBalanceas at 1 Cclcbe’ 20C9charge lot the periodD’sposals

_______________________

Balanceas at 31 December2011

Net book valueas at 31 December2011

31 December 2Q11 31 Doc.mb,r 2011MDL USO

40647 3.46515327 1,291

Office PersonalFurni- equip- Note- compu

License lure ment books tel’s Vehicles Total

45.016 2,701 72403 17005 30961 178.125 346,211

45,016 2.701 72.403 17005 30,961 178.125 346,211

9.003 540 16.159 591 7.219 35,625 72,137

9,003 540 16.159 3,591 7.219 35,625 72,137

36.013 2,161 58,244 13,414 23,742 142,500 274,074

The total amount of depreciation 1USD 72,137) is reflected in ne reports presented to Minislry ofFinance,



(all amountc in USO, unloxs dated otherwise)

11 DETAILED PAYMENTS BY BUDGET LINE INCURRED TO DATE

TotalTotalPayments

as at PaymentsCumulative to31 December

_________

2011 date

1.1 M2 Sarateni - Drochia Junction 466.009 466.009Rc’setcer”’i’ Act on Plan Development 3’ .027 318,427Individual Consultants Services 80 681 80.681Vehicles 62,950 62,950Training & Caøacil Building 3.460 3,468Other 483 4832.1 Rehabilitation of CIS (CISRA) 350.588 350,588Project lmplemenlation Managers 331.135 331,136Individual Consultants Services 9.420 9 420Vehicles 8.681 8 es’Furniture 1 352 1 35222 Irrigation Sector Reform (ISRA) 1,148.315 1,148.315Reform “ ,‘‘m-r’l7lcc Corsij’an 1,135 039 1.135.039Individual i rsvllanIs Services 13,276 13.2762 3 Access to Agricultural Finance (AAF) 9,238 9,236Acert serrent Materials 5.356 5.356Media Events 3303 3.303Other 579 57924 Growing High Value Agriculture Sales 4412.576 4.412.576USAID Support 4412.576 3412 5”r3.2 Capacity Building 15.759 15,759Training & Capacy Buildirig ‘5 “O 15,7594.1 MCA — Moldova 2,002,940 2.002,940Salaries 8. Benefits 1.478,068 1.478,068Office Renovation S Maintenance 60.704 60 704Office Furniture. Equipment & Capital Expenses 289.013 289.013Office Running Costs 34261 34,261iti:ities 8.889 8,889Communication 8.954 8.954Travel a Transportation 74 538 74,538Individual Consultants Services 16921 16.921Outreach 21.’45 21 .746Training & Capacity Building 6.712 6.712Bank Fees 3.134 3,1344.2 Fiscal Agent & Procurement Agent 2.873.970 2.873.970Fiscal Agent 1 923.067 1 923 Ce7Procurement Agent

, 950.903, 980 003

Total Payments 11.279.395 11,279.395

—21/

MIt LENNIUM CHALLENGE CORPORATIONMCA-MOLDOVA PROGRAM


(all amounts in LJSD, unIavs ta ted otho,wic.)

12 COMMITMENTS AND ACCRUALS

Commitments and accruals nc i0e

TOTAL

1. Road RehabilitationProject1.1 M2 Sarateni - DrcchiaJunction1.2 M2 Drochia Junction -

Otaci Sludes2. Transition to High ValueAgriculture Project2 1 Rehabilitation of CIS

iSRArr a’,o” Sector Retorm

SPA’Access to .gricullural

Finance iAAF,2 4 Gro.ing High Valuegr’culture Sacs3. Monitoring & Evaluation3.1 Sludes & Sur’eys3 2 Capacity Building13 Data Quality Review3.4 Evaluation35 Pub ii’ 0 s’nai-h for M&F4. Program Management 8.Oversight4 1 MCA Moli1nv4.2 Fiscal Agent &Procurement Agent4 3 Audit

22 //

AuruaIs TotalTotalTotal as at Accruals UriliquidatCommltm

Payments 31 as at adantsas at December 31 CommItasat

31 2011 December ments asDecember (as per 2011 at 31December

2011 Data CaB (Oth6rs) December2011repo)

20,978.96511,279395- 787,919 16,219 8,895,432

774,319 466.009 14,580 3,801 289.929

774.319 466009 14.580 3801 289.929

13777,979 5.920,717 267,586 7.589.676

5 285.094 350.588 152,056- 4.782.450

4.066.982 1,148,315 115,530 - 2.803.137

13,327 9 238- 4,089

4412576 4.412.576 - - -

19.759 15,759 - 4,000

15.759 15.759 -

4.000 - 4.000

6.406,908 4,876,910 505.753 12.418 1.011,8272,066,651 2.002.940

- 12.418 51 293

4 340 257 2.873.970 805.753 - 960.534

U.S. Agency for International DevelopmentOffice of inspector General1300 Pennsylvania Ave., NW

Washington, DC 20523Tel: (202) 712-1150Fax: (202) 216-3047www.usaid .gov/oig

office of inspector general -...

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